But unless you’re starting with a large amount of start-up capital, the transaction costs of investing in a large diversified portfolio can be expensive. Instead, it may be better to use investment trusts to get exposure to the market.

These can be a great way for investors to buy and hold over the long term. They enable people to pool their money together to get exposure to many different companies via a single investment vehicle.

Income and growth

With this in mind, the Temple Bar Investment Trust (LSE: TMPL) is one fund to consider for anyone seeking both income and growth. The trust invests primarily in UK equities, across different sectors, seeking undervalued stocks.

The fund managers use a contrarian approach in seeking “unloved, misunderstood or forgotten stocks”. It intends to hold stocks for long periods, typically around four or five years, and aims to have a slow-but-steady turnover of its portfolio holdings.

Its top five holdings are well-recognised large-cap names, including Shell (6.3%), HSBC (6.2%), GlaxoSmithKline (5.9%), BP (5.3%) and Barclays (4.6%).

Dividend increases

The business is particularly suited to its investment trust structure as it enables the fund keep some of its dividend income in reserve, allowing it to top up income in lean years and smooth out dividend payments across the cycle. This, combined with the conservative management of its portfolio, has enabled the fund to raise annual dividends for 34 consecutive years.

This is an impressive feat, especially given that it is one of the higher yielding investment trusts on the market. With shares in the Temple Bar Investment Trust currently trading at a 5% discount to its net asset value (NAV), the fund currently offers a dividend yield of 3.2%.

It has low costs, with an ongoing charge of 0.49%, which includes a management fee of 0.35%.

Low cost

The Independent Investment Trust (LSE: IIT) is another low-cost option to consider. With ongoing charges of just 0.25% last year, the fund is one of the cheapest on the market.

The Independent Investment Trust seeks to provide good absolute returns over long periods by investing in UK and international equities. Its portfolio consists predominantly of UK companies, but there is a broad spread across large-cap, mid-cap and small-cap names.

The fund consistently keeps portfolio turnover very low, which reduces transaction costs, and is known to hold many of its investments for long periods. Its long-standing position in premium mixer drinks company Fevertree Drinks, which is currently its top position, has been a significant contributor to its recent outperformance. Elsewhere, it is overweight in the retail sector, following recent new purchases in Footasylum and Quiz.

On the downside, shares in the investment trust are expensive. They trade at a 14% premium to its NAV, as the fund is in high demand following strong recent gains. Over the past five years, it has delivered a total return of 157%, against the FTSE All-Share gain of 46%.

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Jack Tang has a position in Barclays. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Barclays and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

First step

I reckon the first step to successful investing is figuring out your objectives and risk tolerance. You need to define your goals and objectives before you are able to make good decisions on which investments to choose. What you’re investing for, the risks you’re willing to take and your investment horizon can all affect how much you’ll need and which options you should pick.

If you’re just starting out, you’ll probably want to consider investment trusts first. Shares in such trusts are traded just like other shares. But as a fund, investment trusts offer the advantages of being run by a professional fund manager and diversification from buying into a well-balanced portfolio of investments.

Growth and income

If you’re looking for a combination of growth and income, then the Lowland Investment Company (LSE: LWI) might be a great first pick.

This fund invests in a broad spread of predominantly UK companies, with the aim of giving shareholders a higher than average return with growth of both capital and income over the medium-to-long term.

With 121 holdings as at 31 December, the fund invests in a diversified portfolio of companies of differing sizes. Normally, not more than half of its portfolio by value is made up of the largest 100 UK companies, with the balance invested in small- and medium-sized firms.

Outperformance

The fund has a strong track record of outperforming the benchmark FTSE All-Share Index. For the five years to the end of December, the net asset value (NAV) of the trust increased by 79%, easily beating the performance of the FTSE All-Share index, which generated a return of 63% over the same period.

At the time of writing, shares in the trust offer investors an attractive dividend yield of 3.5% and it trades at a slight discount to its net asset value of 6%.

Global diversification

Investors seeking geographical diversification may instead consider the Murray International Trust (LSE: MYI)

Launched in 1907, this fund has invested in a well-balanced portfolio of UK and international shares, with the aim of delivering both growth and income to shareholders. Its investment approach is to seek undervalued, but quality, companies that have a solid business focus, sound management, a strong balance sheet and a good corporate governance record.

Fixed income investments

Equities dominate its portfolio, with an 83% weighting, but the trust also owns a number of fixed income investments, which account for a further 16% of its portfolio. This gives the Murray International Trust even more diversification than some simple equity funds, since the price of bonds generally do not move in tandem with the stock market.

The fund’s top five equity holdings are: Taiwan Semiconductor Manufacturing (4.8%), Quimica Y Minera (4.3%), Groupo Asur (4.2%), British American Tobacco (3.8%) and Unilever Indonesia (3.4%).

This fund could also appeal to income seekers, as shares in the trust currently offer a yield of 4.2%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One investment trust I believe is set to outperform in the year ahead is Henderson Far East Income (LSE: HFEL). It’s a fund suited for income and growth investors alike, with shares in the fund currently offering a dividend yield of 5.4%.

Faster dividend growth

Looking ahead, it seems set to benefit from the more constructive outlook for emerging market economies in 2018, which is likely to drive further gains for emerging market equities. Asian markets are particularly promising, with recent GDP growth forecasts revised upwards for both China and India.

What’s more, Fund manager Michael Kerley reckons Asian companies have a greater potential to grow their dividends than those from other regions because, on the whole, they have been generating more cash than is being used for new investments. This ‘excess’ cash leaves room for increased shareholder payouts going forward.

Additionally, he believes current dividend payout ratios in Asia are relatively low compared to companies from other regions, meaning there’s greater scope for dividend growth than elsewhere.

Value focus

Kerley uses a value driven approach, with a preference for companies that generate reliable and growing cash flow, in order to deliver a portfolio of high quality Asia Pacific equities that generate high and sustainable dividends. As such, I reckon this fund may be considered by income investors as a potential alternative source of equity income to UK-focused equity funds, thereby allowing investors to diversify geographically and potentially to reduce risk.

Over the past five years, the fund has delivered a total net asset value (NAV) return of 53.3%, with dividends per share growing by an annualised rate of 4.1%.

Private equity

Another area worth considering for investors seeking income and growth is private equity. It has been one of the best-performing alternative asset classes in recent years, but retail investors seldom get much exposure to the asset class because it’s largely closed off to them. Thankfully, investment trusts, such as NB Private Equity Partners (LSE: NBPE) enable us to gain access to this market, which is under-tapped by retail investors.

There are many reasons for investing in private equity, not least the fact that there are many more unlisted companies than publicly listed ones, so there is a broader investment universe to benefit from. Other reasons include the historical outperformance in returns against equities, better active management opportunities and diversification advantages.

Lower charges

But what sets NB Private Equity Partners apart from many such investment trusts is that a majority of its assets, by value, is invested directly into private-equity backed companies. This is unlike most other peer businesses, such as the Standard Life Private Equity Trust, which use a ‘fund of funds’ approach that adds an extra layer of cost.

As a result, NB Private Equity Partners has lower all-in costs to investors than most listed private equity investment vehicles.

Another attraction for prospective investors right now is that shares in the investment trust currently trade at a sizeable discount to its NAV. With shares in the trust currently trading at a 16% discount to its NAV, there may be additional scope for upside should the discount narrow in the future.

Shares in the investment trust currently support a dividend yield of 3.5%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m going to look at the prospects and current valuation of the company and at another blue-chip contender for the growth-and-income crown.

Set fair

Imperial released its annual results on Tuesday for what it described as an important year for progress. In a tough trading environment, it advised it had gained market share in most of its priority markets. And despite increased investment, earnings advanced 7% to 267p thanks to favourable currency movements. Meanwhile, 91% cash conversion supported a ninth consecutive year of 10% dividend increases, taking the payout to 170.7p (64% of earnings).

Imperial’s shares are trading at around 3,150p, as I’m writing, which gives a trailing price-to-earnings (P/E) ratio of 11.8 and a running dividend yield of 5.4%. These metrics suggest to me that the stock continues to be an excellent choice for both growth and income. The company is confident the business is set fair to deliver sustainable growth and value for shareholders. This confidence is emphasised by the board’s continuing policy to increase the dividend by 10% a year.

Tobacco companies have continued to thrive even through decades of rising health awareness and increased regulation, while there is little threat to the incumbents from new entrants into the market. As one of the big players and with its shares trading at an attractive valuation, I rate Imperial a ‘buy’.

Excellent business

Fellow FTSE 100 firm Coca-Cola HBC (LSE: CCH), which released a trading update today, is one of the biggest bottling partners of The Coca–Cola Company. It operates in 28 countries “from Ireland in the west to the Pacific coast of Russia in the east, from the Arctic Circle in the north to the tropics of Nigeria in the south.”

Today, the company reported a strong Q3 performance, with net revenue up 5%. Management told us: “We go into the final quarter encouraged by our progress and confident in delivering on our expectations for the full year.”

City analysts are forecasting full-year earnings per share of €1.14 (101p at current exchange rates), 20% ahead of last year. This supports a forecast 18% increase in the dividend to €0.52 (46p). The shares are trading at around 2,600p, giving a P/E of 25.7, which is markedly higher than that of Imperial. Meanwhile, its dividend yield is significantly lower at 1.8%, partly due to a less generous payout ratio of 46%.

Coca-Cola HBC is an excellent business with a tremendous economic moat and has potential to grow its top line at a faster rate than its tobacco peer. In my view, it merits a premium P/E at least in line with other high-quality companies in the drinks sector, such as Diageo. However, the current rating of 25.7 is somewhat above the level I’d be willing to pay, so, much as I like the business, I’d be inclined to hold off in the hope of a lower entry point.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cost pressures

In a trading update for the three months to 30 September, the FTSE 100 firm said its underlying performance for the full year would likely fall “modestly below market expectations” because of continuing cost pressures and negative currency impacts.

Mondi said a weaker US dollar and a sharply weaker Turkish lira were the main drivers of the net negative currency impact on its third quarter operating profit. Cost inflation also contributed to a weaker than expected financial performance, as prices for its three key input commodities, wood, energy and chemicals were all higher than a year ago.

Like-for-like growth

On the upside, the firm is showing steady momentum in like-for-like sales, which had been driven by growing volumes and continued upward momentum in average selling prices. As such, underlying operating profit for the third quarter of 2017 climbed 8% higher than the same period last year, to €245m.

Moreover, free cash flow remains strong as cash generation from operating activities exceeded cash outflows for paying its capex, dividends and interest costs. This enabled the firm to reduce net debt during the quarter, and gives me confidence in the sustainability of its dividends going forward.

Dividends

Mondi’s dividends are covered 2.4 times by earnings, and have grown by a compound annual growth rate of 16.6% over the past three years. And after today’s 8% fall in its share price, you can pick up the stock on a yield of 2.6%, making it a tempting pick for dividend growth investors.

The shares are also attractively valued from a valuation standpoint, as Mondi trades at a lower multiple on earnings than its peers — it has a trailing price-to-earnings ratio of 17, compared to the sector average of 19.4.

This could be a better buy

Rival Dublin-based packaging company Smurfit Kappa Group (LSE: SKG) is also worth a closer look for value-minded investors. Although shares in the company have gained 18% since the start of the year, the firm currently trades on a trailing price-to-earnings ratio of 14.8, with a forward P/E of just 11.4 on this year’s expected earnings.

Although Smurfit Kappa faces similar headwinds to Mondi in terms of cost inflation, the company appears to me to be better placed on the margin front. In spite of these pressures, it has recently been able to grow its margins, due to increased price recovery from its customers and a reduction in its cost base.

Expansion strategy

And on top of organic growth, the company eyes an ambitious global expansion strategy. Although Smurfit Kappa has been quiet on the acquisition front this year, CFO Ken Bowles said the company has financial means to carry out a deal.

“We have enough to spend whatever we want. The size of the deal wouldn’t necessarily be an inhibitor, it is about finding deals at reasonable multiples with quality assets that will fit back in with Smurfit,” he said.

At today’s price of 2,218p, the stock yields 3.2%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Synergies

Progress with the integration of the two bookmakers is going better than many analysts had expected, with the merged group on course to generate £150m in annual synergies by 2019, more than double the group’s original estimate. And on the back of these upbeat expectations, the group doubled its interim dividend from 1p per share, to 2p per share.

As I write, Ladbrokes Coral shares are trading at about 117p, which puts the stock on a 2017 forward P/E of 9.8, and gives it a prospective dividend yield of 3.9%. This indicates that it offers very good value for money, with the average UK-listed company trading at 14.1 times forward earnings and expected to yield just 2.8%.

Retail decline

However, looking ahead, the declining profitability of its shop estate could be a cause for concern. In the past six months, revenues from the group’s UK retail operations fell by 6% with a 7% decline in comparable over-the-counter wagering. Retail gaming revenues seem to be on a long-term structural decline, and still account for roughly two-thirds of the group’s revenues. There is also regulatory uncertainty ahead, with the proposed reduction in the maximum stake on fixed-odds betting terminals being the biggest worry.

Nevertheless, in my view, the market has already priced-in most of these risks. Instead, I believe investors are not fully appreciating the size and scale advantages of the merged group. As such, with modest near-term earnings growth and a re-rating of the stock, I reckon Ladbrokes Coral could offer significant total returns to its shareholders.

Double-digit growth

Also reporting its first-half results on Thursday was logistics and supply chain solutions company Eddie Stobart (LSE: ESL). The firm, which was spun-off from Stobart Group in 2014, reported double-digit growth in revenues and operating profits during the first half of the year.

The company’s underlying revenues increased by 13% to £286.8m from £253.6m in the same period last year. Meanwhile, underlying earnings before interest and tax rose 14% to £16.9m, on the back of margin improvement and new business growth.

Going forward, management expects full-year results to be in line with market expectations, following an encouraging start to the second half. The group is on the lookout for new acquisitions to drive continued earnings growth, and is keen to use its acquisition-led strategy to leverage cross-selling opportunities, implement synergies and strengthen its service offering.

The company’s low valuation and attractive yield make the stock seem to me like a tempting buy. Eddie Stobart trades at just 14.6 times expected earnings in 2017 and has a prospective dividend yield of 3.5%.

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Foresight Solar Fund (LSE: FSFL) is a UK-listed closed-end investment company dedicated to investing in ground-based solar power plants. Managed by independent infrastructure and private equity firm Foresight Group, the solar fund offers a steady income from a portfolio of cash-producing assets.

Financial incentives

With near exponential growth in renewable generational capacity in the UK and across Europe, Foresight Solar is set to take advantage of current trends in power generation. And what makes this sector so exciting for income investors is the regulatory regime and the financial incentives to generate renewable sources of energy.

The guaranteed long-term nature of government subsidies (put in place to meet legally binding targets for renewable energy generation), the visibility of pricing and inflation linking, all underpin the defensive nature of investing in solar assets.

Acquisitions

In the first half of 2017, Foresight Solar made two significant purchases, the first being the 72MW acquisition of Shotwick and the second the 50MW acquisition of Sandridge. The two deals raised its total installed capacity in the underlying portfolio to 470MW.

Foresight Solar today announced the fund’s net asset value (NAV) increased to £432.8m in the six months to 30 June, which lifted NAV per share to 104.6p, an increase of 1.7% since 31 December. As such, shares in the fund currently trade at a modest 5% premium to its NAV.

In the present low-interest-rate environment, the solar fund offers tempting, low-risk income which beats most utility stocks. With a quarterly dividend of 1.58p per share, the company is on track to pay a total dividend of 6.32p per share in 2017, which gives its shares a yield of 5.7%.

Fast-growing

Another dividend stock worth considering is Prudential (LSE: PRU). The London-listed insurer still offers good value as the group is well positioned for further growth.

The Pru’s recent interim results showed its Asia business continuing to drive robust growth as operating profits there rose 16% to £953m, against overall growth of 5% for the group in the first half. There’s also further growth potential as insurance penetration in the region remains relatively very low and there is considerable scope for catch-up growth.

The insurer said that it had today sold its broker-dealer network in the US in a deal worth up to $448m. This follows on from news last week that the Pru is to merge its M&G asset management business with its UK & Europe life assurance division, which has been fuelling rumours that the group may break up to focus on fast-growing markets in Asia.

Scope for further dividend growth

Such a move may unlock ‘hidden’ value for shareholders. The Pru trades in line with its slower-growing UK and European peers, which suggests the group may be worth less than the sum of its parts. But whether a break-up is imminent or not, I reckon the stock remains a tempting dividend growth play.

With a Solvency II ratio of 202%, the insurer is awash with cash, meaning there’s plenty of scope for further dividend rises in the years to come. Moreover, earnings growth is supportive as City analysts expect Prudential’s bottom line will rise by 8% this year and 5% in 2018.

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At the same time, high-growth stocks are not usually considered to be the best income shares because these companies retain capital for expansion purposes. Therefore, dividend yields tend to be significantly less than the market average.

However, Persimmon (LSE: PSN) and Taylor Wimpey (LSE: TW) are both defying the above trends.

Thanks to the UK’s insatiable demand for housing, these two companies have been able to jack up profits and because the initial investment required to build houses is relatively small compared to profits generated, Persimmon and Taylor are returning a large chunk of their income to investors.

Shareholder rewards 

Taylor reported its results for 2016 on Tuesday morning. The company reported a year-on-year rise in pre-tax profits before exceptional items of 21.5% to £733m for the year to December 31, up from £604m a year earlier. The firm’s average selling price rose to £255,000 from £230,000 for 2015. Revenues increased 17% to £3.7bn as the company completed a total of 14,122 homes.

Off the back of these robust figures, Taylor paid £356m to investors via dividends during 2016, which equates to 11.2p per share for a yield of 6.3%. 

This year, the firm is targeting £450m of shareholder distributions, which I calculate as being worth 14p per share or a dividend yield of 7.8% at the current share price. In addition, City analysts believe the firm can chalk up a further 4% increase in earnings per share for 2017. Based on this forecast the shares are trading at a forward P/E of 9.3. Over the past five years, Taylor’s earnings per share have grown fourfold.

Too much capital 

Taylor’s upbeat results come just a day after Persimmon revealed a 23% increase in annual profits to £783m in the year to 31 December 2016. Heading into 2017, management is optimistic about the company’s prospects with forward sales rising 9% to £1.9bn from £1.7bn and a continued gain in selling prices. Underlying gross margins increased by 2.4% to 27.8%. 

Off the back of these impressive figures, management announced a further increase in the company’s capital return plan by £77m or 25p per share taking the total value of the plan to £9.25 over several years.

While management appears confident about Persimmon’s outlook, City analysts are not so upbeat. Consensus estimates predict Persimmon’s earnings per share will fall by 2% this year although at current prices the shares support a dividend yield of 5.4%.

Management knows best

Persimmon’s management knows the company and the housing market better than many City analysts, so this time around I’m inclined to believe that management’s upbeat outlook indicates a positive trading period ahead for the group. 

Like Taylor, over the past four years, Persimmon’s earnings per share have grown fourfold and the shares currently trade at a forward P/E of 10.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Letter volumes dropped sharply following the EU referendum, with letter revenues down 5% in the nine months to 25 December. This impacted total revenues, which fell 2%, despite modest growth in parcel volumes and revenues.

The parcels market is supposed to be the driver of growth for the company, because unlike letter post which is in long-term decline, parcel volumes are booming because of rapid growth in online shopping. Recently though, Royal Mail’s parcel revenues have not been growing by much, with volumes up just 2% in the first nine months. The company faces stiff competition from the likes of TNT and UK Mail, who are unencumbered by Royal Mail’s universal service obligation.

That said, Royal Mail does not need that much growth in volumes to deliver steady earnings growth. As a former nationalised company, Royal Mail is relatively inefficient and there is still plenty more fat to trim and burn. And management seems to acknowledge this, as it recently raised its cost-cutting target to £600m a year, up from a previous target of £500m.

Moreover, the company generates healthy free cash flow, which enables it to reduce net debt and pay sizeable dividends to its shareholders. Its underlying dividend cover of 1.9 times suggests the dividend is well covered. Royal Mail shares currently yield 5.4%, but looking forward, City analysts expect its prospective yield to rise to as high as 6% by 2019.

With underlying earnings expected to rise 10% this year, its shares are attractively valued too. Right now, Royal Mail trades at just 9.8 times its 2017 expected earnings.

Impressive track record

Another stock which seems too cheap to ignore is bus and rail company Stagecoach Group (LSE: SGC).

Thanks to the uncertain political and economic environment, analysts’ expectations for the company’s full year earnings are rather uninspiring. This year, underlying earnings are expected to fall 12% as lower fuel prices crimp demand for bus and rail travel. Looking further forward, things don’t get rosier, with underlying earnings expected to decline a further 10% in 2017/8, with an additional 6% reduction pencilled-in for 2018/9.

But despite the downbeat short-to-medium-term outlook, the firm’s dividends seem well covered. Underlying dividend cover is expected to fall from a very robust figure of 2.4 times last year, to a still safe figure of more than 1.6 times by 2019. And that still leaves room for dividend growth of between 3%-5% over the next three years, which is currently expected by analysts.

On top of this, Stagecoach has a robust track record of returning cash to shareholders. Unlike many transport stocks, Stagecoach maintained its progressive dividend policy even during the Great Recession of 2008/09 and it now has an impressive track record of 12 consecutive years of dividend growth under its belt.

Shares in Stagecoach currently trade at just 8.8 times expected earnings.

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Based on such good trading, I reckon there’s around 25% immediate upside potential in each share price to get the valuations to a ‘fair’ level. 

What they said

On Tuesday, commenting on a first quarter that saw FTSE 250 constituent Britvic deliver 4.3% revenue growth and a 3.9% uplift in volume year-on-year, chief executive Simon Litherland seemed happy. He said: “All our key markets have delivered revenue growth…we are confident that the strong execution of our marketing and innovation plans combined with disciplined revenue management and our cost saving initiatives will deliver full-year results in line with market expectations.”

Meanwhile, AIM-listed Inspired Energy delivered an end-of-year trading update Monday trumpeting a 40% revenue gain, a 45% surge in earnings before interest, tax, depreciation and amortisation (EBITDA), and an order book that has swollen by 14% during 2016.

The firm has grown both organically and by acquisition and chief executive, Janet Thornton said: “Inspired had a very strong 2016 in which the business delivered on its stated growth strategy…  We continue to seek out attractive acquisitions and I am confident that 2017 will be another year of positive growth.”

Valuations 

At a share price of around 632p, Britvic’s forward price-to-earnings (P/E) rating runs around 12.5 for the year to September 2018 and there’s a forward dividend yield of 4.1% or so. City analysts following the firm expect earnings per share (EPS) to lift by 5% during 2018.

With its share price of 13.25p, Inspired Energy’s P/E rating sits at just over 10 for 2017 and the dividend yield is projected to be 3.8% that year. Growth looks strong with analysts anticipating a surge in EPS of 19% during 2017.

Given the defensive nature of Britvic’s business, I’d expect the firm to trade on a much higher rating. Comparing to other soft drinks suppliers, such as Nichols with its P/E rating around 23 and AG Barr at 17 or so, it seems clear that investors expect less growth from Britvic. However, I reckon the company could surprise to the upside on growth over the next few years and a valuation re-rating upwards could materialise for the stock.

Meanwhile, Inspired Energy’s valuation seems conservative given the growth figures the firm keeps posting.

What’s a normal valuation?

In my view, the market is being unfairly cautious on these two firms because both are trading well with apparently good prospects for further growth down the line. 

The median forecast P/E rating of all stocks with forward estimates for earnings runs around 14 on the London stock market. Re-rating to that level would see Inspired Energy put on more than 25% and if Britvic re-rated to match its peer AG Barr, the shares would rise by more than 25%. 

If good trading continues and earnings keep increasing, we could easily see share price gains from here, and there’s the comfort of a decent dividend in each case while we wait.

The post 2 stocks with 25% immediate upside potential appeared first on The Motley Fool UK.

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Kevin Godbold owns shares in Britvic and Inspired Energy. The Motley Fool UK owns shares of and has recommended Britvic. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.